Income Tax (Earnings and Pensions) Act 2003 section 105A

Lease premiums

Section 105A explains how lease premiums paid by an employer on short leases of 10 years or less are taken into account when calculating the taxable benefit of living accommodation provided to an employee.

• Where an employer pays a premium on a short lease (10 years or less) for property used mainly as living accommodation, a proportion of that premium must be attributed to the relevant tax period as part of the accommodation benefit calculation.
• The amount attributed to the tax period is calculated using the formula: (days in the relevant period ÷ days in the lease term) × net lease premium — effectively spreading the premium evenly over the life of the lease.
• The net lease premium is the total premium paid or payable by the employer, less any amounts that have been or will be repaid — so only the net cost to the employer is taken into account.
• A lease premium means any premium payable under a lease or under the terms on which a lease is granted, and in Scotland this includes a grassum (a lump sum payment made in addition to rent).